The American dollar has recently played the role of a kind of "whipping boy". Having no time to calm down the emotions about the trade war with China, the military attacks in Syria began. Traders do not have time to react to the optimism of Fed officials, as it reminds itself of the deficit of the national budget and current account of the US balance of payments.
The growth of key macroeconomic indicators remains in the shadow of low inflation and the weakness of indirect inflationary indicators. However, the main driver of the decline in the US currency is Donald Trump: his comments and actions in the sphere of foreign policy exert the most pressure on greenback.
Today, the dollar entered a next phase of its decline throughout the market. This is especially pronounced when paired with the pound and the euro. The British pound is preparing to update this year's high (1.4345), but the single European currency is trying to return to the 24th figure, the fastening in which will open the way for EUR/USD bulls to the key psychological important goal of 1.25.
It should be noted that good data on the volume of retail sales in the US could not change the overall situation. Although the indicator in monthly terms not only came out of the negative area, but also exceeded the forecast values (+ 0.6% instead of the expected + 0.4% month-on-month). In annual terms, the published figures fully coincided with the forecast of the majority of analysts. However, the positive dynamics of retail sales, indicating the consumer activity of Americans, was ignored by traders.
The market is under the impression of the next tweet of the US president, who this time accused Russia and China of deliberately devaluing their national currencies. In fairness, it should be noted that the ruble, in pairing with the dollar, moved away from its upward highs (64.88), having strengthened to the border of the 61st figure. Chinese yuan also for many months gradually increased in relation to the US currency. If in December 2017 the rate of USD/CNY was equal to 6.62, today the price is located in the area of 6.27. In general, after the central bank of China severely weakened the exchange rate against the dollar three years ago (three percent at once), it began systematically, in three stages, to stabilize the yuan. The last phase began in the autumn of the year before last and the downward dynamics of USD/CNY has been observed so far.
In other words, Trump's position in this issue is not entirely correct, therefore the political implication of the above tweet is obvious. But the market drew attention to other aspects of Trump's statement today. First, the US president blamed Russia and China for devaluing national currencies, "while the US raises interest rates." Earlier, US Treasury Secretary Steven Mnuchin spoke about the benefits of a weak dollar, especially against the background of a record growth in the deficit of "twin budgets." In turn, Trump last year made a choice in favor of "centrist" Jerome Powell. Of all the likely candidates, Powell takes the most restrained and cautious stance on tightening monetary policy. Therefore, today's tweet Trump about the actions of the Fed has another implication: the US president clearly does not approve of the possible acceleration of rates of rate hike.
In addition, another attack on China indicates that the trade war with the Chinese is not complete and may continue in the very near future. According to the American press, this week the White House can expand the list of goods from China, which will be subject to new import duties. In addition, the Trump Administration plans to limit Chinese investment in US technology. Today's announcement to China increases the likelihood of the implementation of this scenario and, accordingly, the likelihood of a response from Beijing.
Additional pressure on the dollar was provided by the representatives of the Fed - James Bullard and Lael Brainard. The head of the Federal Reserve Bank of St. Louis, James Bullard, said that he sees no reason to raise rates before the end of the year, especially against the background of the trade conflict between the US and China, which "introduces an undesirable level of uncertainty in economic prospects." Bullard this year has no voting rights in the Fed, so the sounded position only indirectly affected the dynamics of the euro-dollar pair.
But Brainard's speech (which, unlike Bullard, now has the right to vote in the Federal Reserve) has worried the markets: she also focused her attention on US-China relations, saying that such a trade policy creates significant uncertainty for any further projections.
Thus, the foreign policy of the White House was again the focus of the foreign exchange market. The European currency enjoys this state of affairs, especially against the backdrop of the increasing likelihood of the ECB's stimulus program ending this fall.
On the technical side, the single currency also dominates the dollar. In all higher time frames, the Ichimoku Kinko Hyo indicator shows a bullish " Parade Line " signal, and the price is located between the middle and top lines of the Bollinger Bands indicator. To continue the upward trend, the bulls of the pair need to gain a foothold in the 24th figure (namely above the mark of 1.2420). In this case, the main purpose of further movement will be the level of 1.2500.
